Canada's top regulators approve TMX takeover

Euan Rocha, Jennifer Kwan

6 Min Read

TORONTO (Reuters) - Canada’s top regulators on Wednesday approved the takeover of the country’s biggest stock exchange operator by a group of Canadian financial firms, pushing a protracted process tantalizingly close to the finish line.

The Ontario Securities Commission and Canada’s Competition Bureau approved the takeover of TMX Group by Maple Group - a consortium of Canada’s largest banks, insurers and pension funds - removing two big hurdles to a deal that now needs only the approval of two provincial regulators.

The C$3.8 billion ($3.8 billion) takeover will create a new entity that combines the Toronto Stock Exchange with its biggest rival, Alpha, and with the Canadian Depository for Securities, which clears and settles all stock trades in Canada.

“From what I can see I think it’s a fait accompli. The deal is done,” said Thomas Caldwell, chairman of Caldwell Financial and a TMX shareholder.

Caldwell believes the combined entity will be in a strong position to diversify into other product lines and grow its reach internationally.

Shares of TMX Group rose as high as C$48.50 shortly after the Competition Bureau released its decision, the highest level since February 4, 2008.

“We are very confident that we will be able to honor our July 31 outside date for completing the transaction,” said Luc Bertrand, Maple’s main spokesman and vice chairman of National Bank Financial.

TMX agreed to back Maple’s bid last October, after initially rejecting an unsolicited offer that the banks and their partners put together to scupper an offer for TMX from the London Stock Exchange.

Maple, named for Canada’s Maple Leaf flag, touted its proposal as the best way to keep the country’s exchanges out of foreign hands as a wave of foreign firms launched bids for global rivals in the exchanges sector.

Many of the proposed deals have since fallen apart in the face of strong opposition from regulators.

In February, the European Union blocked a tie-up between Deutsche Boerse and NYSE Euronext that would have created the world’s biggest stock exchange, arguing that the merger would have given the combined entity a stranglehold over the European futures market. Similar concerns led the U.S. Department of Justice to foil an IntercontinentalExchange and Nasdaq bid for NYSE Euronext.

Canadian regulators never had to rule on the LSE offer for TMX, because the London exchange pulled its bid once it became clear that it would not win adequate shareholder support.

BACK TO THE FUTURE

Success of the Maple bid in many ways turns back the clock for TMX, which was spun off by its bank owners in 2000 and then listed on the Toronto Stock Exchange in 2002 in an initial public offering priced at C$18 a share.

Power will now return to the hands of Canada’s financial establishment in a one-stop shop for trading and clearing. The fact that TMX and Alpha control about 85 percent of all stock trades in Canada had raised some antitrust concerns.

But the Competition Bureau said the terms laid down by the Ontario Securities Commission, Canada’s biggest provincial regulator, had mitigated its concerns.

The bureau has issued a “No Action Letter” to Maple in respect to the proposed deal. The letter is par for the course on major deals and gives the bureau the right to revisit its decision if any issues arise within a year of the deal’s closing.

“Following an extensive review of Maple Group’s bid to acquire TMX Group ... the Competition Bureau does not, at this time, intend to make an application to the Competition Tribunal to challenge the proposed transactions,” it said.

Canada has no national securities regulator, which means Maple needed approval from several provincial regulators. Quebec approved the deal in large part in May, leaving British Columbia and Alberta as the only provincial regulators that have not signed off on it.

“I don’t see how any of these could outstrip the gravitas of the OSC and the Competition Bureau,” said Chris Damas, an independent analyst at BCMI Research. “They may play for a few things, but this is a done deal.”

Maple said it is still in discussions with the BC Securities Commission about the proposed conditions relating to CDS and the small-cap TSX Venture Exchange, which is also owned by TMX.

The Alberta commission is reviewing BC’s proposed rules on the Venture Exchange and Maple says it expects the Alberta regulator to amend and restate its recognition orders relating to the Natural Gas Exchange, a TMX-owned energy exchange.

“We are very pleased with the strong progress being made to secure the necessary regulatory approvals. We hope to receive the remaining approvals shortly,” said Bertrand.

Quebec’s securities regulator - the Autorité des marchés financiers - late on Wednesday approved the Maple acquisition of CDS, the only part of the Maple deal on which it had not yet signed off.

Maple said investment dealer GMP Capital Inc has agreed to withdraw from the investor group after Ontario and Quebec regulators ruled that Maple’s board include no more than 50 percent representation from the consortium’s shareholder group.

GMP had a stake of less than 1 percent in Maple.

Greg Eckel, a senior vice president at Morgan Meighen & Associates, which is a TMX shareholder, said he was excited about the prospects for the new combined entity.

“The market is good so their prospects are good. You’d think with the roll in of both Alpha and CDS that it will be a better company going forward,” he said.